The Short Report

This story features MYER HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: MYR

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETF) and non-ordinary shares are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed significant.

Please take note of the Important Information provided at the end of this report. Percentage amounts in this report refer to percentage of ordinary shares on issue.

Stock codes highlighted in green have seen their short positions reduce in the week by an amount sufficient to move them into a lower percentage bracket. Stocks highlighted in red have seen their short positions increase in the week by an amount sufficient to move them into a higher percentage bracket. Moves in excess of one percentage point or more are discussed in the Movers & Shakers report below.

Summary:

Please note: The ASIC Short Report on the FNArena website now appears to be updated by the regulator.

Week ending February 19, 2015.

In the past couple of Short Reports I have noted that short selling activity, be it increases or decreases, had dried up as might be expected as the earnings reporting season got underway. But the season begins slowly, before reports come in thick and fast in the last two weeks. The week in question for this Report was week one of the season's avalanche of reports. And all hell broke loose on the shorting front.

The ASX200 rallied over the period from 5750 to 5900. Aside from some global macro influences — Greek dramas and Fed speculation for example — the rally has also been driven by some big moves up in individual stocks following their report releases. It matters not whether a company saw its profits increase or decrease, it matters only what the market was expecting the result to be. The FNArena Reporting Season Monitor confirms that beats have been outnumbering misses, by around 1.5 to 1 in the week in question, and quite clearly the rally we saw in the index owed a lot to short covering. The level movements on our most shorted stock table is extraordinary.

Indeed, there are too many significant short reductions to go into very specific detail, although Movers & Shakers provides a summary. Suffice to say, our 10% plus shorted table has reduced in membership from eight stocks the week before to a mere three — Myer ((MYR)), Metcash ((MTS)) and Fortescue Metals ((FMG)). Stocks posting results that prompted subsequent significant short-covering include UGL, Super Retail, Cardno, Pacific Brands, MMA Offshore and The Reject Shop. Stocks that fell in price post-result, allowing for notable short profits to be taken include BC Iron and Virtus Health. But as the amount of green on the table below attests, shorters were very active in reducing positions across the board, one way or the other. Only one stock, Whitehaven Coal, saw a short increase of any note.
 

Weekly short positions as a percentage of market cap:

10%+

MYR   19.8
MTS    15.8
FMG   10.6

Out: UGL, AGO, CDD, SUL, NXT

9.0-9.9%

UGL, AGO, JBH, SUL

In: UGL, AGO, SUL       Out: KAR, PBG, ACR, KCN, MIN

8.0-8.9%

CDD, NXT, WHC, SGM, MND, MIN, KAR, PRY, COH, FLT

In: CDD, NXT, MIN, KAR, WHC              Out: ALQ, SXY, ORI, ASL, BCI

7.0-7.9%

ORI, ALQ, PBG, KCN, SXY, JHC

In: ORI, ALQ, PBG, KCN, SXY                  Out: WHC, CAB, TRS, NWH, MRM, VRT

6.0-6.9%

CAB, BCI, ASL, SGT, RRL, DSH, ARI

In: CAB, BCI, SGT, DSH, ARI                    Out: MSB, MGX, GNC

5.0-5.9%

NWH, CRZ, MGX, VRT, WOW, MSB, MRM, NWS, DOW, VET, TPI

In: NWH, MGX, VRT, MSB, MRM, VET   Out: SGT, DSH, ARI, ILU, TEN, GWA, IIN
 

Movers and Shakers

Our 10% plus shorted club has reduced to only three stocks from eight the week before. Dropping into the 9% plus bracket were UGL ((UGL)) previously on 11.6%, Atlas Iron ((AGO)), previously on 10.3%, and Super Retail Group ((SUL)), previously on 10.0%.

Dropping all the way into the 8% plus bracket were Cardno ((CDD)) from 10.2%, and NextDC ((NXT)) from 10.1%. NextDC had not yet reported.

Pacific Brands ((PBG)) dropped into the 7% plus bracket from the 9%. BC Iron ((BCI)) dropped into the 6% plus bracket from the 8%. Ausdrill ((ASL)) dropped into the 6% bracket from the 8% and had not yet reported.

NRW Holdings ((NWH)) had not yet reported either but dropped into the 5% bracket from the 7%. Virtus Health ((VRT)) dropped into the 5% from the 7%. MMA Offshore dropped into the 5% from the 7%. And The Reject Shop ((TRS)), not so long ago a member of the 10% plus club, dropped from the 7% bracket right out of the table.

One must spare a thought for poor old Whitehaven Coal ((WHC)), while just about every movement on the table was a reduction last week, aside from a bit of shuffling around at the bottom, Whitehaven saw its shorts increase to 8.7% from 7.7%.
 

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position "naked" given offsetting positions held elsewhere. Whatever balance of percentages truly is a "short" position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, "short covering" may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to "strip out" the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option ("buy-write") position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a "long" position in that stock.

Another popular trading strategy is that of "pairs trading" in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a "net neutral" market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are "short". Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms